Federal Reserve policy makers said the job market has made further gains, keeping them on a path to raise interest rates this year for the first time in almost a decade without providing a clear signal on the timing of liftoff.

“The labor market continued to improve, with solid job gains and declining unemployment,” the Federal Open Market Committee said in a statement Wednesday in Washington. It dropped the modifier “somewhat” from its description of the decline in labor-market slack.

With Chair Janet Yellen and her fellow policy makers saying their decisions are “data dependent,” the focus turns to figures on growth, jobs and inflation that will help determine whether the Fed raises rates in September, as many economists expect, or later in the year.

“The committee is keeping the door open for rate hikes later this year, not necessarily opening it further or closing it,” said Michael Gapen, chief U.S. economist for Barclays Plc in New York and former Fed Board economist. “Labor markets have improved further, and they need to see a little more improvement to be ready to go.”

Stocks extended gains, with the Standard & Poor’s 500 Index climbing 0.7 percent to 2,108.57 as of 4:08 p.m. in New York. Treasuries remained lower, with the 10-year note yielding 2.28 percent, up three basis points, or 0.03 percentage point, from late Tuesday.

David Fuller's view

The Fed, while still data dependent, is predictably preparing stock market investors for the quarter-point rate hike that it would like to introduce this year.  In addition to US economic data, there are two other factors which could influence the decision in favour of either September or December.

One is the US stock market for which I think the risk of a 10% plus correction is quite high between now and end October.  The Fed knows its eventual rate hike could trigger that correction, but that possibility would not stay its hand if the economic data continues to edge higher.  However, I think the Fed would be more likely to hold off if the market was already in a correction. 

What could trigger that correction?  It would not take much over the next three months and it might just be a question of uncertainty plus gravity. 

The other factor is China which is the world’s second largest economy and stock market.  China’s government has certainly made a hash of its stock market policies in recent months.  A further fall would increase widespread concerns over the country’s GDP growth.  Conversely, if Xi Jinping and co can buy a rally for more than a few days, while also allowing two-way  trading by the public to resume, international investor confidence would improve.  That would give the Fed fewer international qualms about a rate hike this year. 

To put matters in perspective, the next few months will be interesting.  However, if US equities experience a correction, as we have seen in most other stock markets this year, I would regard that as a buying opportunity, even though the process of interest rate normalisation is likely to be choppy over the next two or three years.  Over the longer term, I think the US and most other stock markets will do very well, for the reasons I have mentioned repeatedly in Friday’s big picture Audios.